Gonçalo Moreira, CMT
Independent Analyst
- Until last week, the direction of the EURUSD was debatable from a chartist point of view. From today's perspective, the recent break above channel resistance – connecting the August 24 and September 18 spike- offered the awaited directional clues, i.e. upward.
- Oscillators are far from overbought, providing room for appreciation.
- The breakout occurred in a low volatility environment which on the other hand should not be regarded as an offsetting argument. As long as market participants show little confidence that the Fed will hike rates this year, combined with current market positioning, the liquidation of EUR shorts and USD longs is prone to continue.
- As for positioning, although shorts were already trimmed all the way since March lows, Euro non-commercial traders are still net short by -87k accordingly to the COT report released by the CFTC.
- Note that gradual squeezing of shorts traces periods of slowly ascending prices, with shrinking volatility. Once all the die hard shorts are convinced the trend is up, the market is ready to reverse. This is a fertile ground to trade the markets “coast-line†as explained in the bottom links.
- In the basket of the bulls I have pending limit buys at 1.1321, 1.1291, 1.1227
- On the other spectrum, limit sells are located just above current spot at 1.1433, 1.1441, 1.1448
The trading methodology reported in this analysis is based on a non-directional approach. It is meant to capture the most amount of pips from the constant price oscillations, either up or down. Each trade has a take profit of 50 pips, a stop loss of 500 pips. The size of each trade is regular, but trades can be stacked around key support and resistance zones, increasing the overall position size around certain price zones. The system can perform either in trending or range bound markets, but it suffers when there is an extreme unidirectional price advance. Buy and sell positions are taken with two separate real accounts.
To learn more about the method, you can watch these special webinar series:
Exploring the Coast Line of Foreign Exchange Land - Part I
Exploring the Coast Line of Foreign Exchange Land - Part II
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